History
Rosetta Resources has an unusual history. The company was born in July 2005 as a private company that purchased the domestic oil and gas operations of Calpine (NYSE:CPN), a utility in California that was trying to raise cash to improve its fiscal situation. Unfortunately for Calpine, the funds were not enough and the company entered bankruptcy in December 2005; it emerged from Chapter 11 in January 2008.
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Rosetta Resources paid $1.05 billion for the assets, which it financed by selling Rule 144A stock for $725 million; it payed the balance with a credit line. In February 2006, Rosetta Resources went public when shareholders who had purchased under the Rule 144A deal cashed out their shares.
When the company went public in 2006, its reserve base was concentrated in two areas - 44% of its reserves in the Sacramento Basin of Northern California and another 44% in South Texas. Rosetta Resources has since diversified by purchasing and developing assets in other areas.
California
The company is a major producer in the Sacramento Basin, where it has 69,000 acres under lease and 110.9 Bcfe of proved reserves. Since this area is a mature basin, Rosetta Resources has one rig working on recompletions and workovers. Another large producer from this basin is Venoco (NYSE:VQ), which has 207,000 acres under lease and plans to use three rigs to complete workover and infill drilling in 2009. (For related reading about this sector, read Investing In Oil And Gas UITs.)
South Texas
The company's second major area is in South Texas, where it has reserves and production from the Lobo Trend. This field, a major cash cow for Rosetta Resources, produced average daily production of 46.1 MM cubic feet equivalent per day in 2008. The company also has an emerging shale play in an area called the Eagle Ford shale, where it already has acreage.
Recent Acquisitions
Rosetta has been active in the acquisition market despite the fall in commodity prices and credit crunch. In December 2008, it bought into the Pinedale Field in Wyoming and the Eagle Ford Shale in South Texas. The properties were purchased from Constellation Energy (NYSE:CEG) for $59 million in total. Constellation Energy has decided to divest its upstream gas assets. (Dig up more information about this industry in our Oil And Gas Industry Primer)
Competing Drillers
Rosetta Resources now has 28 producing wells in the Pinedale, albeit on a small acreage position of only 1,280 acres. A high growth area, the Pinedale is dominated by Ultra Petroleum (NYSE:UPL), which pioneered drilling in there over the last decade. Ultra Petroleum has 121,000 acres under net lease in the area and has grown reserves at a 23% compound annual growth rate since 2004.
Bottom Line
The transformation of Rosetta is well under way and investors who move into this name at the currently depressed trading level will reap the rewards of the company's investments in higher growth areas. (For related reading on how to make money in this sector, read Unearth Profits In Oil Exploration And Production.)
